Book review: The Halo Effect - Luca Bolognese

Book review: The Halo Effect

Luca -

☕ 3 min. read

When I read Built to Last, In search of ex­cel­lent and Good to great I im­me­di­ately thought: What a bunch of BS!!. But again, I think that about most busi­ness books.

The con­tent of these books seemed par­tic­u­larly lu­di­crous to me. I found both log­i­cal in­con­sis­ten­cies and method­olog­i­cal flaws in their process. For ex­am­ple, pick­ing suc­cess­ful com­pa­nies af­ter the fact is anal­o­gous to pick­ing the win­ners of a lot­tery and claim that they have ex­cep­tional skills. Betting the farm on a sin­gle con­cept (i.e. Big Hairy Goal) is clearly the right thing when you are right, but most of­ten than not you are wrong. What about all the com­pa­nies that did that and failed? Also, Keeping to the Core worked re­ally well for Coca Cola, but re­ally badly for Kodak.

These are just ex­am­ples. These books are packed full of such rea­son­ably sound­ing ab­sur­di­ties. I thought that every­body would im­me­di­ately spot this. I thought that the mediocre sub­se­quent per­for­mance of the com­pa­nies orig­i­nally se­lected as ex­cel­lent would ob­vi­ously demon­strate the un­sound­ness of such con­clu­sion. I was very wrong. These tomes are hugely suc­cess­ful. People seemed to dis­agree with me. They re­ally like this stuff. Given that my work and my life were not overly im­pacted one way or the other, I left the mat­ter to rest.

And then came The Halo Effect. It was a plea­sure for me to read, as it con­firmed my own ideas (confirmation bias any­one?) and added many more.

The ti­tle is slightly mis­lead­ing. A bet­ter ti­tle would have been: Why the idea of find­ing com­mon traits among suc­cess­ful com­pa­nies is baloney. I know, not as catchy. The catchy halo ef­fect, men­tioned in the ti­tle, is just the biggest delu­sion that peo­ple have about the topic.

I found an ex­per­i­ment re­counted in the book to be very il­lu­mi­nat­ing. They di­vided a set of peo­ple in mul­ti­ple groups and gave each group a prob­lem to solve. They then told half of the groups that they did a very good job and the other half that they did a very poor job. The thing is, they did so at ran­dom. They then asked peo­ple to rate the dy­nam­ics of their group on sev­eral fac­tors. People that were told that they did a good job re­ported to have had won­der­ful dy­nam­ics: open dis­cus­sions, in­spired lead­ers, high cal­iber peo­ple and such. The op­po­site was true for the other groups.

It did­n’t mat­ter what the ac­tual dy­nam­ics had re­ally been: some groups were very con­fronta­tional, oth­ers were very am­i­ca­ble; some were very vo­cal, oth­ers were very quiet. In the end, peo­ple who were told that they did good re­called the ex­pe­ri­ence in pos­i­tive terms. People who were told that they did poorly, re­called the ex­pe­ri­ence in neg­a­tive terms. Remember, good and bad out­comes were as­signed ran­domly. Also, the re­sults have been con­firmed in sev­eral sim­i­lar stud­ies.

It is not a good strat­egy that dri­ves per­for­mance. It is per­ceived per­for­mance that makes peo­ple think that they had a good strat­egy. This is: The halo ef­fect. This sim­ple con­cept has dra­matic reper­cus­sions.

First of all, it in­val­i­dates the main process used in these stud­ies: if you use news­pa­pers ar­ti­cles and man­agers rec­ol­lec­tion to draw con­clu­sions, you are just pil­ing ha­los over ha­los. People would cer­tainly give all sort of pos­i­tive at­trib­utes to com­pa­nies that suc­ceeded. They do it ex­actly be­cause they suc­ceeded. And when these com­pa­nies fail, they sud­denly give all sort of neg­a­tive at­trib­utes to them. The book is full of ex­am­ples of com­pa­nies that were rated as ex­cel­lent when their stock price went up and ter­ri­ble when their stock price went down. Nothing changed in these com­pa­nies, they were still do­ing the same ex­act thing.

The book con­tains many other in­sights of why these studies’ are deeply flawed. It calls them delu­sions. You are prob­a­bly fa­mil­iar with some of them if you have a sci­en­tific back­ground: for ex­am­ple, Delusion of Correlation and Causality, Delusion of Single Explanation (factors are not in­de­pen­dent), Delusion of Connecting the Winning Dots (ad hoc af­ter the fact se­lec­tion). Other delu­sions are spe­cific to the an­a­lyzed do­main: Delusion of Lasting Success, Delusion of Absolute Performance, Delusion of Organizational Physics.

In the end what should man­agers do? Instead of fol­low­ing these book­s’s pre­cepts, they should fo­cus on two things: strat­egy and ex­e­cu­tion. Both of these things are prob­a­bilis­tic en­deav­ors where the ab­solutely wrong mea­sur­ing stick is the re­sult that you ob­tain. I al­ways found this to be a very com­mon er­ror peo­ple fall into at what­ever level in an or­ga­ni­za­tion. The er­ror is judg­ing the sound­ness of a de­ci­sion by its re­sult. A de­ci­sion should be judged by the sound­ness of the process to get to the de­ci­sion and the in­for­ma­tion avail­able at the time the de­ci­sion was taken. This is the only thing that is con­sis­tent with the prob­a­bilis­tic na­ture of the world we live in. The book pro­files three lead­ers who em­body this prob­a­bilis­tic view.

In sum­mary, please go and read this book. There are many more things in it than I de­scribed in this (albeit long and bor­ing) post.



The process to get the decision and data available at the time of the decision are of course of paramount importance. I agree on that. What I do not agree is that we should not rate the result of the decision to judge it. After all if the process is sound but the decision we take leads to an unwanted result then the shareholders will not be happy about that. In other words, if I had to bet my money I would bet it on someone that is lucky. Lucky as Warren Buffet. I would not bet it with somebody with a good process like Myron Scholes.

I disagree. You can bet on the lucky one just after the fact, and at that point he might become unlucky.
BTW: Buffett has a better process than Scholes because it is more tied to reality (assuming that by Scholes you mean the efficient market theorists).

Dolly Photon


"The error is judging the soundness of a decision by its result" - you can't possibly mean that! Otherwise it would be impossible to learn from experience. Where else does our knowledge of the the "soundness" of our processes and information come from?

Excellent point !!!
Experience is a series of experiments with an initial state, an action and an outcome. It is the data base that helps us to form our opinion that given an initial state (i) and an action (a1) there is a certain probability (p1) that I obtain a particular outcome (o1).
The observed result of a decision is just a modification of the probability associated with that initial-state/action pair. It just changes your opinion of p1, often not by a large amount given that it is just one instance.
In this mental framework, you don't judge the soundness of a decision by the result, you just change the associated probability when you observe a certain result.
This is not how people think, because our minds are evolutionary wired for cause/effects relationships (i.e. I see a tiger, I better run). Nonetheless I argue it is a better framework to cope with the current world (given the observed scarcity of tigers :) ).

When I read " Built to Last ", " In search of excellent " and " Good to great " I immediately thought: "What a bunch of BS!!". But again, I think that about most business books. The content of these books seemed

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